Source: BestWire Services, November 15, 2012
Posted on: http://envfpn.advisen.com
The Virginia Supreme Court has ruled TravCo Insurance Co.’s “all-risk” homeowners’ insurance policy did not cover claims regarding defective Chinese drywall.
The case was filed by Larry Ward, who bought a home in Virginia Beach and a homeowners insurance policy from TravCo in 2007 that was later renewed through 2010. In 2009, Ward experienced problems with the home that an expert related to Chinese drywall and filed a claim with TravCo saying the drywall caused health issues and damaged his air conditioning system, garage door and flat screen televisions. TravCo denied the claim, saying the damage was excluded from coverage by the terms of Ward’s policy, which excluded losses caused by latent defects; faulty, inadequate, or defective materials, rust or corrosion; and pollutants, defined to include any gaseous irritant or contaminant.
TravCo then went to the U.S. District Court for the Eastern District of Virginia, asking the court to throw out the claim based on the exclusions in the policy and it did so. Ward appealed to the U.S. Fourth Circuit, which put the questions concerning whether drywall damage is excluded from the “all-risk” policy to the Virginia Supreme Court. Attempts to get comment from TravCo were unsuccessful.
In the Nov. 1 ruling, the court said Virginia insurance contract interpretation governed the case and said the plain language of the insurance policy showed that “each of the four exclusions is unambiguous and excludes damage resulting from the Chinese drywall from coverage.” The ruling said the homeowners policy latent defect exclusion provides that TravCo did not insure for loss caused by “latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself.”
Ward tried to argue the latent defect language in his policy meant that testing would have revealed problems with the drywall and covered his losses. But the court ruled that the language determined the drywall was excluded. Ward also tried to argue the faulty and defective materials exclusion did not apply to his loss because the policy did not define those terms. And he argued unsuccessfully the exclusion of loss caused by “rust or other corrosion” in the policy did not apply because the terms were not defined. The damage in the home was not caused by corrosion, Ward argued, but was the corrosion itself.
The Virginia case is among the latest of a series of drywall-related claims. In June 2011, Chartis Inc. and other carriers who insured a Miami building supplier agreed to a $54.5 million preliminary settlement of a lawsuit filed by about 2,000 Florida homeowners (Best’s News Service, June 15, 2011). Arch Insurance Co. and Liberty Mutual Fire Insurance Co. paid more than $8 million to settle claims brought against another Chinese drywall distributor, Interior/Exterior Building Supply (Best’s News Service, April 27, 2011). And a federal court also approved a pilot program crafted by Knauf Plasterboard Tianjin Co. Ltd. that remediated 300 homes suffering with problems resulting from Knauf drywall (Best’s News Service, Oct. 15, 2010). Chinese drywall was used from 2004 to 2007, following several destructive hurricane seasons and a housing boom. But homeowners complained the drywall emitted elevated levels of sulfur and strontium (Best’s News Service, June 15, 2011).
TravCo Insurance Co., a member of Travelers Group, currently has a Best’s Financial Strength Rating of A+ (Superior).